The biggest misconception about crypto crime investigations is that they rely solely on the expertise of specialists. While crypto crime investigators play an essential role, they are only one part of a much broader collaborative effort.
To successfully identify, track, catch, and prosecute criminals involved in crypto crime, authorities need a breadth of stakeholders. These include law enforcement agencies, their overseas partners, private firms like exchanges, blockchain analytics solutions providers, prosecutors, and courts.
This article will discuss what these various stakeholders do in the crypto crime investigation process, how collaboration is essential between them, and how blockchain analytics tools can help.
Stakeholders in a crypto crime investigation
There are many individual and institutional stakeholders involved in any crypto crime investigation. Below, they are listed in order of relevance, from most essential to least.
- Crypto crime investigator - There is a reason that they have become synonymous with any crypto crime investigation. Investigating crypto crime requires special expertise, such as knowledge of the blockchain and how criminals use evasion and obfuscation techniques and tools.
- Blockchain analytics solutions providers - During the advent of crypto crime, many investigators investigated the blockchain manually. Reading the information from a blockchain explorer is no longer feasible due to the complexity of crypto crimes. Blockchain analytics companies, like Merkle Science, provide not only the necessary tools, but also special credentials necessary to succeed in any investigation.
- Law enforcement agencies - Crypto crime investigators typically belong to a law enforcement agency. These experts will need to collaborate with peers who are not experts in crypto crime, including everyone from a forensic accountant to a legal advisor.
- Overseas partners - Due to the transnational nature of crypto crime, law enforcement agencies will frequently need to work with overseas partners. For example, a local authority may need to work with a foreign partner to apprehend a suspect in their jurisdiction.
- Exchanges - Exchanges may be involved in handing over evidence to investigators or in taking necessary enforcement action, such as freezing the assets of a suspect.
- Prosecutors - Prosecutors are essential in determining whether a case against a crypto criminal will stand. They gather evidence, present a legal argument, and advocate for the strongest possible punishment against the perpetrators.
- Judiciary - They preside over cases, ensure cases are held fairly, and apply and interpret relevant law to the trial of crypto criminals. They may also lead the sentencing of crypto criminals based on existing laws.
- Regulatory agencies - While agencies are crucial to the regulatory environment, they generally play a minor role in any crypto crime investigation. In the long-term, they shape and influence policies and laws, which will affect how future cases are handled.
Why collaboration in crypto crime investigations is often difficult
Collaborating for any criminal investigation is already challenging. There are special nuances to crypto crime that make it even more difficult. Here are some of the key challenges with collaboration in crypto crime investigations:
- Complexity of information-sharing - With other types of crimes, it is easy to share evidence. For a robbery investigation, for example, investigators can freely share evidence pertaining to the crime scene, victim statements, and weapon. They just need to attach the relevant files to an email like any other knowledge worker.
This ease of information-sharing is not possible in crypto crime. The heart of any crypto crime investigation is the visualization of how transactions are linked, which ultimately attributes a crime to a particular criminal. For example, crypto crime investigators may trace a money laundering trail from a hack to a wallet associated with a particular person. These links are typically made through a blockchain analytics tool, which often lack simple sharing features Because blockchain analytics is extremely complex, modules for collaboration can be an after-thought or entirely overlooked.
- Pseudonymous nature of criminals - For investigators in other areas, it is easier to take action against criminals. They generally have a criminal’s name or alias to use as a starting point. For example, an investigator can share a criminal’s name with another agency to see whether they have more information on them, or ask them to take necessary action, such as blocking them from entering the country.
In contrast, investigators in crypto crime do not have the luxury of having names to cross-reference and collaborate around. Due to the pseudonymous nature of blockchain, stakeholders involved in a crypto crime investigation will often only have wallet addresses to work from. With their resources limited to wallet addresses, it will be more difficult to track criminals, gather evidence against them, and take enforcement action.
- Real-time nature of crypto crime - The most difficult aspect of investigating crypto crime is its speed. For example, in the wake of a hack on an exchange, the attackers could easily move funds across hundreds of different wallets and over different blockchains, all in a matter of hours. This speed also translates to agility in the real world: With a few of these transactions, criminals can easily move crypto funds overseas and exit with the funds on an exchange in a country with lax regulations.
This creates a complex trail of illicit funds that investigators must quickly unravel. Failure to do so with a speed that matches criminals will mean they remain a step ahead. They may be able to escape with funds, obscure their trail, or even tamper with evidence, such as by mixing stolen coins with those belonging to others through a mixer.
Crypto crime presents several challenges that complicate any investigation.
How blockchain analytics tools can help
Fortunately, blockchain analytics tools can simplify the collaboration necessary to successful tracking, identification, capture, and prosecution of crypto criminals. Blockchain analysis companies like Merkle Science provide tools that can assist investigators at every stage of the investigative process:
- Continuous monitoring of accounts - Every blockchain analytics tool has the ability to investigate a particular account. Investigators must enter an address, and the solution will provide a detailed transaction history, links to any known criminals, and red flags.
Many blockchain analytics tools rely on human initiative: They rely on investigators manually checking whether a wallet is suspicious. The problem with this approach is that a wallet that passes an initial check will not always be clean. For example, criminals may reactivate a dormant wallet as an exit point for laundered funds.
The best blockchain analytics tools will offer continuous monitoring. For example, once an address is entered on Merkle Science’s Compass tool, the solution will automatically monitor that account for any activity. When activity is detected, it then reports this information to investigators. This feature is essential because it saves valuable investigative time, allowing stakeholders to focus on collaboration and other higher level tasks.
- Seamless sharing of dashboards - Crypto crime investigators lead the investigation by linking criminals to accounts associated with a particular crime, often through a visualization of the illicit fund trail created on a blockchain analytics tool. Compass makes it easy for investigators to share these dashboards. With one click, crypto investigators can provision access to other stakeholders.
With this access, other professionals at the law enforcement agency can understand how and where illicit funds were moved. Overseas partners or exchanges can take enforcement action against accounts that were a part of the laundering trail.
Just as importantly, investigators can revoke access when necessary to preserve the confidential nature of any crypto crime investigation.
- Attribution - The biggest challenge of any crypto crime investigation is attribution: Stakeholders must collaborate to connect wallets involved in a crypto crime as being owned, controlled, or affiliated with the suspects. Failure to conduct attribution means that the criminals will be able to avoid prosecution.
Compass is a powerful tool in terms of attribution. The solution helps investigators not only connect the dots between criminals and their accounts, but it helps prosecutors and judges understand how this linking works. In other words, Compass does not function as a black box as many other blockchain analytics tools do. Instead the solution provides insight into how its technology operates, lending credibility to the tool’s methodology for attribution during prosecution.
Conclusion
Crypto crime investigations do not rely on the singular expertise of a blockchain expert. These investigations instead depend on the broad collaboration of many different individuals and groups, ranging from solutions providers and exchanges to prosecutors and judges.
Unfortunately, the nature of crypto crime adds an additional layer of complexity to any investigation. Crypto crime occurs in real-time, is pseudonymous, and creates a complex trail that must be depicted through special visualizations that are often difficult to share. The choice of a strong tool in blockchain analytics can mitigate these challenges, enabling all stakeholders to share relevant dashboards, continuously monitor accounts, and conduct attribution on suspects. With the right tool, these different individuals and groups can make the transition necessary for any successful investigation: They evolve from stakeholders to collaborators.
Contact Merkle Science for a free demo on how Compass can streamline collaboration for your crypto crime investigation.